The E-Mini S&P 500 Futures are currently trading at key resistance following the bear trap that played out last Tuesday. If the ES can close the day above 1174, I would expect that a move back above 1200 ES will be in the cards.
This latest rally began on news that Europe would recapitalize the banks. The continuation of this rally rests on further news that this indeed will be the case. German Chancellor Merkel and French President Sarkozy agreed to a plan over the weekend, but as of yet there are no actual details. Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit.
This is a positive sign for now and most markets around the globe were positive overnight.
Part of the plan to recapitalize the banks will depend on getting a loan from the European Financial Stability Facility (EFSF). However, this must be ratified by all 17 Euro governments and so far Slovakia is offering resistance to the idea. Any negative news in regard to the recapitalization plan this week will likely be met by selling in the markets. Watch for the results of the Slovakia vote tomorrow.
All signs eventually point to the recapitalization plan going through. Even Russia has apparently offered help. The chief economic aide to Russia's president Dmitry Medvedev said today the country, along with other major emerging economies, could help Spain and the European Union with its debt crisis, if asked.
This is good in terms of adding support to the financial markets, but ultimately it is just financing debt with more credit. It prevents contagion from a Greek default in the short-term. It prevents more banks from failing. It delays greater economic pain. In terms of the markets, it puts a floor under them... for now. We'll see if any negative news hits the wires. i.e. Slovakia vote tomorrow...
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